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Saturday, October 21 2017 @ 05:29 PM AST

Commercial banks account for ~62% of Barbados' total financial assets

While commercial banks remain the dominant subgroup in the financial space, new and innovative products have led to the sustained development of other financial entities. These entities provide support to all the key growth sectors in the economy, as well as mortgage and consumer financing to private individuals, and are active participants in the domestic capital market. Another phenomenon that defines the financial landscape is the degree of interconnectivity and cross-border linkages among the institutions. For example, all of the six banks operating in Barbados are affiliated with parents domiciled in other jurisdictions. The major insurance companies operate both regionally and internationally, and the trust and finance companies are subsidiaries either of other financial institutions or of other conglomerates.

Commercial banks currently account for approximately 62 percent of total financial assets. Insurance companies hold 18 percent of financial assets, while non-bank financial institutions (trust and finance companies) and credit unions each represent 10 percent of the market. Collectively, the asset base of these institutions amounted to $16 billion at September 2013, equivalent to 185 percent of GDP.

The financial system is highly concentrated with significant cross border interest, primarily through ownership structures. In the banking sector, each of the six banks is owned by a foreign parent three based in Canada, two in Trinidad and Tobago and one in the United States of America. The three Canadian banks account for 75 percent of total bank assets. Loan exposure is concentrated in a few main sectors which drive the economy. Beyond personal loans, half of which are mortgages, significant portions of credit are directed to tourism, distribution and professional services (see Figure 2). Similarly, finance companies provide specialised financing mainly for mortgages and motor vehicle purchases. While some trust and finance companies are owned by banks, others are associated with insurance companies, credit unions and other non- financial conglomerates. Credit unions also provide loans to members, most of which are consumer personal loans. Activity in this sector is heavily skewed, as 4 (out of 35 credit unions) account for more than 85 percent of total assets, membership, loans and deposits.

The insurance sector can be classified into two business types: life insurance and non-life insurance providers. As at year-end 2012, 16 general insurance and 5 life insurance companies operating in Barbados held combined assets of just over $3 billion. Life insurance companies account for 77 percent of the industry, most of which is driven by one entity (see Figure 3). The largest insurance group has both life and non-life operations and accounts for 60 percent of the industry. Moreover, its operations span several territories (including the US) and include companies providing mutual funds, asset management and financing.

Oversight of the financial system is shared between the Central Bank of Barbados and the Financial Services Commission (FSC). Commercial banks, trust companies, finance companies and merchant banks fall under the aegis of the Central Bank, while credit unions, insurance companies, occupational pension plans, mutual funds and the securities market are regulated under the FSC Act. Collaboration between these two regulators is established by a Memorandum of Understanding and is formalised via the Financial Oversight and Management Committee (FOMC). The FOMC provides for mutual assistance, exchange of information, and monitoring of the financial and coordination of financial policies to preserve the stability of the system.

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